Yesterday at 11:10 am in New York, when most of the world was asleep or getting ready to go to sleep, conspirators at the Comex dumped almost 40,000 gold futures contracts in the market and sent the price of the precious metal down 1.1% in 30 short minutes! This criminal activity happens especially when market fundamentals align in favor of gold but regulators conveniently choose to look the other way.
The conniving mainstream media chooses to report these incidences as accidental fat finger trades. But look, the professional commodities trader has exceptional trading aptitude and such frequent mistakes don’t just add up for this caliber people. It is also very curious that fat finger trades like to happen just when market fundamentals are aligning in favor of gold? Even more curious is that these professional traders don’t make accidental fat finger trades when they are trading other commodities or other asset classes.
They are only prone to fat finger trades when they are trading this precious metal and the trading accident always results in a downwards direction in the price of gold.
The trigger this time was the bond market. The bond market spooked financial markets when the yield curve of U.S. treasuries flattened. A flattening yield curve indicates that investors are not sure about future economic growth. A steep positive yield curve indicates that investors expect strong economic growth and an inverted yield curve indicates that investors expect sluggish to negative economic growth.
The yield curve flattened this week and investors rightly became unsure about future economic growth. They sold off equities and bonds and stock indices from the U.S, Europe to Asia retreated from their lofty record high perches. This was the time for gold to shine because gold is considered a safe investment in times of declining economic fortunes but a bee stung some traders finger and it jerked over the keyboard!
This always happens when there is good news for gold. Another incident is the Italian referendum that happened on December 4, 2016. Italians were asked whether to accept constitutional reforms proposed by the country’s Prime Minister Mateo Renzi. Its passage was supposed to give some 8 troubled Italian banks a lifeline through banking reforms that would have happened much easier and faster had the referendum passed.
These 8 banks are a serious systemic risk to the global banking system and their failure can result in the collapse of the global banking system. The banks rescue is ongoing but banking reforms have to still pass through the existing very slow bicameral legislative process. The referendum failed to pass and this was supposed to be good news for the safe heaven asset gold but the price of this precious metal plummeted 1.5% when markets opened on December 5th.
This type of manipulation also happened again when gold was officially accepted as an investment in Islamic Finance for the first time. There is now a sharia gold standard that has opened up the USD 2 trillion sharia finance market to gold. If Islamic finance institutions were to allocate just 1 or 2 % of their assets to gold then this will be enough demand to spike the price of gold. This good news for gold came out on December 5, 2016 and gold rallied 0.6% but again plummeted 1.2% an ounce by December 12th.
This is how the price of gold is manipulated. The motivation is of course to keep the public’s faith in a financial system that has been bloated out of proportion by years of loose monetary policy. Otherwise, investors would dump the USD, stocks and bonds for gold and the excesses and failures of the current USD anchored monetary system would be exposed.
The intention of yesterday’s (Friday) gold price manipulation was to scare investors who became bullish on gold after reading the yield curve from piling their buy orders come Monday. But long term gold investors need not to worry. Market fundamentals are in favor of gold. Trouble is brewing in the Middle East and we are all waiting to see if what the crown prince is up to will substantially raise the price of oil.
The U.S. economy cannot handle high oil prices and keep ‘prospering’ like it has done since the last recession in 2008. It just has to sneeze and every other economy will catch the cold.
In his trip to Asia, Trump extended an olive branch to North Korea and at the same time consolidated support for the war he intends to wage against North Korea if Kim Jong Un does not give up his nuclear programme. But China and Russia were not forthcoming.
The stock, bond and real estate markets are at record bubbles and they will have to cede their values to gold sooner rather than later. Sheer market forces and strong will from the public will eventually overwhelm the fat finger even if it gets stung by a scorpion. Gold investors just need to stay put.